SEC suspends MSRB’s rate card fee model

The Securities and Exchange Commission has suspended the Municipal Securities Rulemaking Board’s 2024 rate card fee model, returning all fees the MSRB collects to 2023 levels and raising immediate questions about what fees will be applied to bonds that have already sold but have yet to close.

The Commission received the MSRB filing one business day before its suspension deadline, not giving them “sufficient time to evaluate the material included therein,” the SEC said. “Temporary suspension will allow for additional analysis of whether the MSRB Fiscal Year 2024 Budget is reasonable and whether the proposed rule change provides for reasonable fees and charges that satisfy the standards under the Act and the rules thereunder.”

There will be a three-week comment period once the suspension notice has been published in the federal register, and the SEC will provide feedback to the MSRB on what changes it would like to see and whether it will approve or disapprove going forward.

The MSRB’s new rate card model was introduced for FY 2024 to better help the board respond to market pressures and adjust yearly rates accordingly. It was met with swift backlash, as commenters asked the MSRB to provide the market with more transparency around where much of the money it collects goes. But dealer groups urged the MSRB to adopt the proposal anyway, for fear that returning to 2023 levels would cause significant disruption.

“The SEC’s suspension of the MSRB’s 2024 Rate Card Fees is unfortunate, as it mandates fee rates revert immediately to 2023 levels. This presents the potential for operational disruptions for dealers who use automated compliance and bookkeeping systems which are already loaded with 2024 fee rates,” said Leslie Norwood, managing director, associate general counsel and head of municipal securities at the Securities Industry and Financial Markets Association. “Also, transactional fee rates are now in limbo; if the 2024 Rate Card is subsequently approved later this year, it is unclear whether the 2024 rates would be retroactive to the date of suspension or only effective going forward.”

“The SEC’s action is disappointing, particularly as the industry previously raised concerns about the suspension of the MSRB 2024 Rate Card Fees, and in fact the SIFMA/BDA supplemental letter specifically asked the SEC not to suspend the MSRB’s fee filing due to these concerns,” Norwood added.

“We are disappointed with the decision to suspend the 2024 rate card,” said Michael Decker, senior vice president of federal policy and research at the Bond Dealers of America. “While we have important concerns about the MSRB’s budgeting and fee-setting processes, neither BDA nor other stakeholders asked the SEC to suspend the 2024 rates. Also, suspending the 2024 rate card raises questions about which fee applies to new issue transactions which have been sold but not yet closed. We will review the suspension notice with our members and file comments with the SEC as appropriate.”

The 2023 rates are currently in effect as of Tuesday and Decker added that the questions of which fees the bonds will be subject will remain relevant for a week or two until the bonds close.

The move to suspend the MSRB’s fees is unusual for the SEC, but it did recently suspend the Financial Industry Regulatory Authority’s consolidated audit trail proposal, which, fearing this possibility, is partly why BDA and SIFMA took the time to pen the letter urging the Commission to adopt the rate card.

It may take some time for the dust to settles and for many of the market’s questions to be ironed out. But it’s clear that market concerns for more transparency from the MSRB will persist.

“We are reviewing the filing and working to understand its implications, including the broader questions raised about the MSRB’s budget,” said Susan Gaffney, executive director of the National Association of Municipal Advisors.

“There is a lack of transparency in the MSRB’s budget-setting process, and the public should understand how the Board formulates its spending plans and whether those plans are reasonable prior to the Board setting a rate card to fund its budget,” said American Securities Association president and chief executive officer Chris Iacovella. “Enhancing transparency, soliciting stakeholder input, and adopting a more fiscally responsible approach is the only path forward in this instance.”